What equity should first employee get given that he will be offered below market average(30% pay cut approx)?
The role of first employee will be principal developer whereas there are 2 founders(1 technical and 1 non technical).<p>I saw a relevant post in HN before but it is over 7 years old. https://news.ycombinator.com/item?id=973060<p>What is the current market trend in giving equity to first few employees?
Think of your startup as a gamble (because it is). People place "bets" on the future profits or sale price. Bets are placed in the form of UNCOMPENSATED time, money, ideas, relationships, supplies, equipment and facilities.<p>Your employee is betting 30% of his market salary.<p>You, the original founder, are betting part or all of your market salary plus cash to pay the 70% of the first employee's salary and anything else you have bought.<p>Later you will add more people and they will place bets too.<p>You have no idea how long the betting will last and how much will be bet until the company breakseven or raises a Series A round.<p>At that point you will be able to see how much each person bet.<p>Their equity should be based on their bets.<p>For example. If you and I start a company and we each bet $100,000 (in various forms) before we reach breakeven we each deserve 50% of the equity. However, if you bet $300,000 and I only bet $100,000, you should get 75% and I should get 25%.<p>Anything else isn't fair.<p>This is the essence of the Slicing Pie model (www.slicingpie.com). The Slicing Pie model uses the fair market value of a participant's contribution to not only determine a fair equity split, but also a fair buyout (if any) when someone leaves the company.<p>Traditionally, equity splits have been based on rules of thumb, industry averages, negotiations or guesses about the value of the company and a person's promised contributions.<p>Traditional splits are always wrong.<p>Slicing Pie is used all over the world.
If you're going to use market rate as the basis, I'd suggest using the same source for equity that was used to determine the 30% reduction in salary.<p>However, to me, market trends should not be the basis for this decision because the value of the employee will be measured against the survival and success of the company. If the employee is fungible, then it might be better to contract out the work than to invest in the hiring process.<p>Good luck.